How the construction industry is affecting your neighborhood

(Originally published October 2010)

You might think the construction industry only affects your neighborhood when a new house or business is built nearby. Nothing could be further from the truth. Construction in any area affects the economy in terms of tax revenues, jobs and growth.

Currently, local new home and commercial construction costs are at record lows; 10%-15% less than they were 3-4 years ago. However, these costs will go up during the next 6-24 months, but builders won't be able to charge more for their work.

Builders are only guaranteeing their quotes for 30 days because materials prices are fluctuating.

When build costs increase that does not mean the price of the building will. Unfortunately, most of these costs will come out of the builder's profit margin and the consumer will make up the rest.

Financing for large projects is still very difficult to obtain. Federal regulators are tying banks up and private investment money is hard to come by. Therefore, smaller, local investors are really the only ones available to fund new construction.

The $8,000 buyer tax credit, which was great for Realtors like me, slammed home builders. For example, let's say a builder finished a house on April 30, 2010 and planned the closing in 30 days. Then the program deadline was extended another 90 days. Suddenly that builder is left paying loans on their construction for 120 days instead of 30, which significantly decreased their profit.

Construction is most hampered by foreclosures, which are still steadily coming on the market. A home buyer will go to the bank for a loan, and upon telling the banker she intends to buy a new home, the banker will say, "Why do you want to buy a new home when we've got all these great foreclosures at bargain basement prices?" Suddenly that new home is not sold.

It happens just like that every day.

The bottom line is the local construction industry is 60% off what it was 3 years ago and putting downward pressure on our economy. But, if you have the capital and want to build your business or dream home the timing is perfect.